WAC

 ASSIGNMENT  

 
Assignment  1  
 

Sands  Corporation  
 
A  report  
Submitted  to  
 
Prof.  Mukul  Vasavada  
 
 
 
 
 
 
 
 
 
 

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 WAC  ASSIGNMENT  

Sands  Corporation  
Clairmont,  USA  
 
August  1961  
 
To     Vice  President  Manufacturing  
 
From            
                           
Subject:  Report  on  feasibility  of  setting  up  new  plant  at  either  Kimberley  Street  or  
Hampton  
 
I  am  enclosing  a  report  on  the  feasibility  of  setting  up  the  new  plant  at  either  Kimberley  
Street  or  Hampton.  
 
The  options  of  setting  up  the  plant  at  either  of  the  two  locations  have  been  analyzed  
after  taking  into  consideration  various  factors.  While  doing  so  economic  considerations  
have  been  prioritized  above  all.  
 
I  sincerely  hope  that  the  analysis  satisfies  your  concern.  
 
I  shall  be  glad  to  provide  any  further  clarifications  you  seek.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Executive  summary  
 
Sands  Corporation  has  three  plants  operating  at  near  capacity  to  produce  parts  for  
regular  commercial  customers  and  Defense.  With  an  increase  in  the  number  of  
government  contracts  and  no  space  available  at  either  of  their  plants,  Sands  
Corporation  needs  to  set  up  a  new  plant.  
 
Sands  Corporation  has  the  option  of  setting  up  the  plant  at  either  Kimberley  Street  or  
Hampton.  
 
Each  option  has  been  evaluated  in  terms  of  economic  viability,  labour  availability,  
government  role  and  possibility  of  future  expansion.  
 
On  the  basis  of  this  evaluation,  it  is  recommended  that  the  plant  should  be  set  up  at  
Kimberley  Street  with  no  further  delay  to  ensure  completion  of  contract  on  time  and  
flow  of  continuous  orders.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Word  Count:  115  words  
 
 
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TABLE OF CONTENTS

Sr. No. Content Page No.

1. Situation analysis ………………………………….. ….5

2. Problem statement………………………………… ....6

3. Criteria for evaluation………. ………………….. ….6

4. Options…………………………………………...……6

5. Evaluation of options………………………………....6

6. Recommendation……………………………………...8

7. Action Plan………………………………………….....8

8. Exhibits………………………………………………...9

 
 
References  
 
 
 
 
 
 
 
 
 
 
 
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Situational  Analysis  
 
Sands  Corporation  operates  three  plants  all  in  the  Midwestern  section  of  United  States  
for  its  diverse  product  lines,  all  of  which  being  used  to  near  capacity  for  production.  
As  a  result,  in  order  to  fulfill  increasing  government  contracts  and  due  to  the  
unavailability  of  space  and  labor  at  the  main  plant  and  two  branch  plants  respectively,  
setting  up  of  the  new  plant  as  per  government  specifications  at  another  location  is  a  
requirement.  Governmental  contracts,  however,  form  an  insignificant  portion  in  terms  
of  sales  value;  however  they  have  a  huge  profit  margin  for  Sands  Corporation  (Exhibit  4).  
 
Costs  &  Benefits  at  Kimberley  Street  (K.S.)  and  Hampton  
The  Capital  and  operating  costs  for  the  plant  in  K.S.  would  be  $  651,770  &  $  3,255,640  
respectively  (See  Exhibit  3).  Since  K.S  is  located  in  a  large  industrial  area  (In  Clairmont)  
and  close  to  the  main  plant,  re-­‐location  of  staff  from  other  plants  &  supply  of  labor  (See  
Exhibit  2)  is  not  an  issue.  However,  the  employees  at  this  site  would  become  a  part  of  
the  National  Union.  It  would  attract  a  high  price  for  its  Land  &  Building  in  future.        
The  capital  and  operating  costs  for  the  plant  in  Hampton  would  be  $  620,480  and  $  
3,554,500  respectively  (See  Exhibit  3).  It  is  situated  in  a  small  town  in  the  centre  of  a  
farming  area.  There  are  labour  uncertainties  as  most  of  the  labour  is  either  engaged  in  
farming  or  is  already  employed.    
Transportation  Cost  would  be  about  the  same  for  both  the  sites.  Construction  at  either  
locations  would  take  4-­‐6  months  and  the  delivery  has  to  start  within  8  months  (10th  April  
1961)  else  it  attracts  a  penalty  of  $  1000  a  day  and  loss  of  reputation.  
Therefore  a  review  of  the  entire  situation  needs  to  be  carried  out  in  order  to  finalize  the  
new  plant  location.  
 
 
 
 
 
 
 
 
 
 
 
 
Problem  Statement  

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A  decision  regarding  setting  up  the  plant  at  Kimberley  Street  or  Hampton  needs  to  be  
made.  
 
Criteria  for  Evaluation  
1. Economic  Viability:  This  is  an  important  criterion  as  the  current  decision  is  to  be  
made  with  respect  to  cost  minimization  and  efficiency  maximization.  
2. Labour  Availability:  This  is  again  an  important  consideration,  as  without  
adequate  and  required  labour,  work  cannot  initialize.  
3. Governmental  Role  (In  terms  of  location)  
4. Possibility  for  Future  Expansion  
 
Options  Available  
Following  are  the  alternatives  to  be  considered:  
1. Setting  up  the  plant  at  Kimberley  Street  
2. Setting  up  a  plant  at  Hampton  
 
Evaluation  of  the  options  
 
1. Setting  up  the  plant  at  Kimberley  Street  
 
i. Economic  Viability  
a. Location:  The  two  acres  of  land  is  located  close  to  the  main  plant  in  
a  large  industrialized  area.  
b. Savings  in  the  operating  cost:  This  plant  accounts  to  a  saving  of  $  
298,860  annually  (See  Exhibit  3)  
c. Owing  to  the  prime  location  of  the  plant  the  resale  value  of  the  
Land  &  Building  would  be  high.  
ii. Labour  
a. Availability:  There  is  a  surplus  of  required  skill  labour  (See  Exhibit  
2).  In  case  of  a  Union  strike  in  a  worst  case  scenario,  owing  to  the  
tight  delivery  schedules,  recruiting  labour  for  a  short  period  if  need  
be  will  not  be  difficult.  
b. Labour  Unrest:  In  a  critical  strike  situation  at  K.S.  even  a  9-­‐10%  
wage  hike  would  result  in  an  operating  cost  of  $  3,538,240  which  is  
still  $16,260  lesser  as  compared  to  the  total  operating  cost  at  
Hampton  (without  any  wage  hike).  
iii. Future  Expansion:  In  case  of  a  need  for  using  this  space  for  further  
expansion,  its  close  proximity  to  the  main  plant  and  available  labour  
supply  will  help  improve  cost-­‐effectiveness  and  efficiency  in  operations.  
 

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2. Setting  up  the  plant  at  Hampton  

 
i. Economic  Viability  
a. Location:  The  ten  acre  plot  is  available  in  a  small  town  in  the  
center  of  a  farming  area.  
b. Cost:  the  capital  cost  would  be  $  620,480  which  is  $  31,290  
lesser  than  the  cost  to  be  incurred  at  K.S.  Therefore  the  
opportunity  cost  of  this  savings  would  amount  to  $  1251.6  
annually  (See  Exhibit  3).    
c. Resale  Value:  There  are  concerns  regarding  the  possibility  of  
being  able  to  sell  the  land  if  need  be,  owing  to  its  remote  
suburban  location.  
ii. Labour  
a. Availability:  There  is  a  great  deal  of  uncertainty  in  the  
availability  of  Labour  as  only  700  people  replied  in  a  survey  as  
being  available  for  employment  (as  against  the  requirement  of  
600  workers)  out  of  the  total  population  of  7800  around  the  
area  (See  Exhibit  2).  
b. Training:  The  availability  of  skilled  labour  being  scarce  calls  for  
training  cost  at  one  of  the  its  existing  plants  and  this  plant  
having  a  separate  product  line  will  create  further  complications  
in  addition  to  the  relocation  cost  for  the  training  period.  
iii. Government  role:  Considering  that  the  plant  is  being  set  up  to  meet  
government  contracts,  government  normally  encourages  (does  not  
mandatorily  require)  a  company  setting  up  a  plant  in  remote  location  like  
Hampton,  however,  the  high  operating  cost  &  labour  uncertainties  at  
Hampton  make  Kimberley  Street  a  better  option.  
iv. Future  expansion:  The  land  can  be  used  for  future  expansion  if  required,  
however  the  uncertain  supply  of  labour  raises  questions  on  the  feasibility  
of  utilizing  the  space  for  expansion.  
 
An  in  depth  look  at  the  various  costs  &  benefits,  labour  supply  (with  possibility  of  strike),  
future  expectations  reveals  that  Kimberley  Street  appears  to  be  a  better  site  to  function  
cost-­‐effectively  than  Hampton.  
 
 
 
 
 

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Recommendation  
Sands  Corporation  should  consider  setting  up  the  new  plant  at  Kimberley  Street.  
 
 
Action  Plan  
There  are  certain  issues  that  need  immediate  attention  of  management  such  as:  
1. To  Address  labour  concerns  and,  through  their  active  participation  and  
involvement  ensure  that  the  plant  has  no  unwanted  interruptions.  
2. Minimum  interruptions  in  the  plant  which  once  operative  will  ensure  greater  
satisfaction,  increased  productivity  &  therefore  there  would  be  on  time  delivery  
of  order.  
3. Leveraging  on  the  advantages  of  the  location  site  for  building  long  term  relations  
with  the  government  officials.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Word  count:  985  words  
 
EXHIBITS  
 
EXHIBIT  1  
 

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EXHIBIT  2  

Availability of labor

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*  Total  Availability  of  Labor  at  Kimberly  Street  includes  Male  &  Female  and  is  as  per  the  survey  
conducted  by  US  Employment  Service  
*Total  Availability  of  Labor  at  Hampton  is  arrived  at  as  per  a  survey  conducted  by  the  company  within  a  
ten  mile  radius  including  7800  people  of  which  only  700  replied.  
 
 
 
EXHIBIT  3  
 
CAPITAL  COSTS  

Kimberly  Street   Hampton  

   
Cost   Rate  $   Cost  ($)   Rate  $   Cost  ($)  
Land       50000       20000  
Construction       600000       600000  
3.54  
Tax   $/100   1770   2.40$/100   480  
Total  Cost  
($)       651770       620480  
*  The  assessment  rate  is  assumed  to  be  100%  of  the  value  
 
 

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 WAC  ASSIGNMENT  

OPERATING  COSTS  
Kimberly  Street   Hampton  

    Rate   Consumption   Rate   Consumption  

Cost  ($)   Cost  ($)  
($)   in  millions   ($)   in  millions  

Elecricity-­‐  
kilowatt/hr   0.101   4   404000   0.21   4   840000  
Gas/1000  cubic  
feet   0.46   50   23000   0.71   50   6000  
Water/1000  
gallons   0.11   24   2640   0.25   24   35500  
Labor           2826000           2673000  
Total  Cost  ($)           3255640           3554500  
 
Savings  on  Operating  Cost  for  Kimberley  Street  are  $  298860  ($  
3554500-­‐$  3255640)  annually  
 
LABOUR  COSTS  
Labour  Cost  at  Kimberley  Street  
    Total  
Rate  ($)   Requirements   Hours/Day   Days   Month  
Cost  ($)  
Skilled   2.25   300   8   25   12   1620000  
Semi-­‐Skilled   1.85   150   8   25   12   666000  
Unskilled   1.5   150   8   25   12   540000  
Employees    -­‐      -­‐      -­‐      -­‐      -­‐    -­‐  
Total  Cost  for  Labour                         2826000  
 
Labour  Cost  at  Hampton  
    Total  
Rate  ($)   Requirements   Hours/Day   Days   Month  
Cost  ($)  
Skilled   2.05   300   8   25   12   1476000  
Semi-­‐Skilled   1.75   150   8   25   12   630000  
Unskilled   1.4   150   8   25   12   504000  
9000-­‐per  
Employees   employee/year   7    -­‐    -­‐    -­‐   63000  
Total  Cost  for  
Labour                         2673000  
 
 

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INTEREST  ON  CAPITAL*  
Savings  on  account  of  Capital  Costs  for  
Hampton      
Kimberley  Street   Hampton      
Difference   Rate   Amount  
Capital  costs  $   Savings  
$   %   $  
651770   620480   31290   31290   4   1251.6  
*Reference    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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EXHIBIT  4  
SANDS Corporation
Net Sales & Income, 1942-61
Net  Income  after  
Year   Net  sales   Taxes  
1942   19,000,000   781,000  
1943   24,114,000   605,232  
1944   24,091,000   702,401  
1945   22,091,000   480,223  
     1946   20,245,000   472,403  
1947   20,110,000   503,527  
1948   20,102,000   662,153  
1949   19,022,000   292,078  
1950   24,052,000   1,200,042  
1951   27,187,000   1,417,984  
1952   27,804,000   1,458,142  
1953   26,553,000   1,304,897  
1954   24,357,000   727,890  
1955   26,749,000   1,088,471  
1956   27,672,000   1,243,115  
1957   27,004,000   1,198,007  
1958   24,984,000   746,848  
1959   26,943,000   1,292,702  
1960   26,110,000   1,145,662  
1961*   28,000,000   1,400,000  

*- Estimated figures
The fall in the net income & the net sales in the year 1945 & 1946 is 8% and 23%
respectively, which is the result of decrease in government orders after the World
War II.
References  
http://www.smh.com.au/articles/2003/06/11/1055220657738.html  for  interest  rate....  
 
 
 
 
 

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